Thursday, October 29, 2009
7:49:58 PM EDT

Rolling the Dice

by
James Brown

My market outlook is still short-term bearish. Today's big bounce in the indices seems a little overdone. For many fund managers their year-end is tomorrow. Today and tomorrow could be window dressing and a last gasp effort to enhance their yearly returns. I wouldn't be surprised to see this bounce roll over in the next couple of days. If it does we can use it as a bearish entry point. However, if it does not and this is really a bullish reversal then we want to add a little bit more bullishness to the newsletters. I'm adding a couple of candidates but I would keep positions very small to limit risk.

NEW DIRECTIONAL CALL PLAYS

Potash Corp. - POT - close: 96.82 change: +2.88 stop: 93.40

Why We Like It:
POT has been a volatile stock for years, which can be both a blessing and a curse for option traders. The stock was a little short-term oversold yesterday as it fell toward its 50 and 100-dma. Seeing a bounce from this technical support isn't a surprise. I suspect the bounce might have a bit further to go. I'm only going to give this a day or two. If we don't see a confirmation rally on Friday or Monday we'll probably exit early.

I would open very small call positions (25% normal size) now with a stop under Wednesday's low. Our target to exit is $104.00.

Suggested Options:
I am suggesting the November calls. This should end up being a very short-term trade. I'm suggesting the $100 strike.

Why We Like It:
The dollar appears to be reversing its rally at its trendline of resistance. If the dollar does reverse then oil should remain strong and that will fuel gains for the oil sector. SLB looks like a bullish candidate after its recent correction.

I'm suggesting small positions now (1/2 to 1/4 normal size) with a tight stop under Wednesday's low. Our target is $69.90.

Suggested Options:
I'm suggesting the November calls. My preference is the $65 strike.